If you’ve ever heard that carrying a credit card balance will improve your credit score, you’re not alone. This myth has circulated for years. It misleads people into paying interest every month. But is there any truth to it? Does carrying a balance actually help your credit?
Let’s break it down and put this financial misinformation to rest once and for all. Spoiler alert: Carrying a balance is not only unnecessary—it can be downright harmful to your financial health.
What Does It Mean to Carry a Credit Card Balance?
Before diving into whether carrying a balance is good or bad, let’s define what it actually means.
Carrying a credit card balance happens when you don’t pay your bill in full by the due date. Instead of paying the entire amount owed, you pay a smaller portion, like the minimum payment required by your credit card issuer. The leftover amount—your balance—rolls over to the next billing cycle.
This might seem harmless at first, but that unpaid balance starts accruing interest immediately. And credit card interest is no joke. Most credit cards have interest rates of 20% or more, which means carrying a balance can get expensive fast.
The Myth: Does Carrying a Balance Improve Your Credit Score?
One of the most common misconceptions about credit is that carrying a balance will boost your credit score. Let’s unpack why this isn’t true.
Credit Utilization vs. Carrying a Balance
Many people confuse credit utilization with carrying a balance. Credit utilization refers to how much of your available credit you’re using, and it’s one of the biggest factors in determining your credit score. Experts recommend keeping your utilization below 30% (and ideally under 10%) for optimal credit health.
However, your credit utilization is calculated based on your statement balance—not whether you carry that balance into the next billing cycle. Paying your balance in full doesn’t erase your utilization; it simply means you won’t owe interest.
Paying in Full Still Builds Credit
Paying off your full balance every month demonstrates financial responsibility to lenders. It shows that you can manage credit wisely without taking on unnecessary debt. Carrying a balance doesn’t add any extra benefit—it just adds extra cost in the form of interest.
Carrying a Balance Can Hurt Your Credit
If you carry too much debt relative to your income or available credit, it can signal to lenders that you’re overextended financially. This could lower your credit score and make it harder to qualify for loans or other credit in the future.
The Real Costs of Carrying a Credit Card Balance
Let’s move beyond myths and look at the tangible impact of carrying a balance. Spoiler: It’s not pretty.
You’re Paying for Nothing
When you carry a balance, you pay credit card companies extra for no reason. With an average interest rate of 20%, even a modest balance can cost you hundreds or thousands of dollars in interest over time. For example, carrying a $2,000 balance at 20% APR could cost you $400 in interest in just one year.
It Slows Your Financial Progress
Interest payments are money down the drain. Instead of building your savings, investing for the future, or paying off other debt, you’re stuck giving that money to your credit card issuer.
Carrying a balance also makes it harder to budget effectively. If a portion of your income is always going toward interest payments, you have less flexibility to handle unexpected expenses or work toward financial goals.
The Debt Spiral is Real
One of the most dangerous aspects of carrying a balance is how quickly it can spiral out of control. Interest compounds over time.
You are charged interest on the original balance and any unpaid interest from previous months. This can make it feel like you’re running on a financial treadmill—paying but never getting ahead.
Stress and Anxiety
Let’s not overlook the emotional toll. Living with credit card debt can be incredibly stressful, especially if it feels like you’re trapped in a cycle of interest payments. Financial stress can impact your overall well-being, relationships, and even physical health.
When Carrying a Balance Might Be Unavoidable
To be fair, there are situations where carrying a balance is unavoidable. Life happens—unexpected medical bills, car repairs, or job loss can force you to rely on credit to cover essential expenses.
Hint – Having an emergency fund set up will keep you from this trap! An emergency fund keeps you from relying on debt and loans for when life gives you lemons (they taste awful!).
If you find yourself in this situation, here are some strategies to minimize the damage:
Focus on High-Interest Debt First (Avalanche Method)
If you have multiple credit cards, prioritize paying off the ones with the highest interest rates. This will save you the most money in the long run.
Focus on the Smallest Debt Balance First (Snowball Method)
This method is slightly less effective than the avalanche method. However, it is still a powerful tool for debt repayment. In this method, you prioritize paying off your smallest debt balance and work your way up.
Make More Than the Minimum Payment
The minimum payment is designed to keep you in debt as long as possible. For example, paying off a $500 balance could take as much as 6 years with minimum payments! Whenever possible, pay more than the minimum to reduce your balance faster and minimize interest costs.
How to Build Credit Without Carrying a Balance
The good news is that you can build and maintain a great credit score without ever carrying a balance. Here’s how:
Use Your Credit Card Regularly
Make small, manageable purchases—like groceries, gas, or subscription services—to show lenders that you’re actively using credit.
Pay Off Your Full Balance Each Month
Always pay your statement balance in full by the due date. This keeps your utilization low and prevents interest from accruing. Treat your credit card like any other bill. It must be paid in full every month to avoid fees.
Keep Your Utilization Low
Even if you’re paying in full, aim to use less than 30% of your total credit limit. For example, if your credit limit is $5,000, try to keep your statement balance under $1,500.
Monitor Your Credit Report
Regularly check your credit report for errors or inaccuracies that could harm your score. Dispute any mistakes promptly.
Why Do People Believe this Myth?
So why does the myth about carrying a balance persist? Part of it may come from a misunderstanding of how credit scores work. Others may have been misinformed by well-meaning friends or family. Unfortunately, credit card companies benefit from this myth. They make billions each year from interest payments.
The bottom line: Don’t let misinformation keep you from making smart financial choices.
TL;DR
You should never carry a credit card balance. It does not “help” your credit score! This myth has led many to pay credit card companies, thinking it would improve their credit.
Instead, use credit responsibly. Pay your balance in full each month, keep your utilization low, and monitor your credit report. Not only will this save you money, but it will also put you in a stronger financial position to achieve your goals.
Remember, credit cards are a tool for building financial health—not a trap for accumulating unnecessary debt. Make them work for you, not the other way around.
